Monday, September 22, 2008

An Op-Ed Idea: Don’t Blame the Poor: The Causes Behind the World Food Shortage

The world food shortage reported on earlier this year has affected consumers all over the world, with those in developing countries the hardest hit. While most Americans have experienced a modest increase in food prices, in some developing countries, where people often spend over 50% of their income on food already, price increases can be dramatic for a home.

The question of where this crisis originated from, and what can be done to stop it from happening again, is of paramount concern. Editorialists such as Thomas Friedman and numerous economists (such as Esther Duflo) have pointed to a few main culprits: poor management of food stocks by world governments, droughts in Australia and Europe, rising fuel and fertilizer prices, moving corn from food to ethanol production, and, finally, rising meat consumption in China.

While there are many reasons behind the increase in prices, a lot of attention has been paid to this last point recently. Increased meat consumption in China has in fact added little to the severity of the crisis, and in any case it is a ridiculously hypocritical argument considering how much meat we in the west consume.

Economists use the word shock to highlight an unforeseen economic change. For instance, the droughts in Australia and Europe in 2006 and 2007 were not predicted, and so came as a surprise. So were increases in fuel prices. These kinds of surprises can be very dangerous for an economy as all of the planning producers had been relying on to deliver food goes out the window.

Biofuel also came as a kind of shock to the world food system. Driven by subsidies and tax credits to producers, all of the U.S. growth in corn production from 2004 to 2007 went to biofuel. What should have gone onto a person’s plate has been instead diverted to fuel production without the necessary planning to sustain such an increase in demand.

These shocks are the real culprits. Producers can’t predict these changes, and so can’t be ready. But of course, that’s what food stocks are supposed to be for--the unforeseen shocks.

Cereal stocks have been decreasing around the world over the last few years though. Businesses were just responding to market incentives. It is governments, who are supposed to be following these stocks, that have failed to regulate stocks properly, so when the crisis finally came, no one was ready.

Compare this to the increase in consumption in China and India over the last few years which was expected, and well planned for. A close look at the data reveals that Chinese meat demand has been rising steadily, but consistently, for many years. Producers were planning for this growth, and growing grain production right along with it.

Increased meat consumption has been blamed for food problems because it takes more protein from plants in order to produce the same amount in meat. For beef it can take up to 7 times as much. An increase in meat consumption thus means a multiplied increase in demand for plants.

This kind of reasoning lead to an April 2008 report in Biofuels Digest. The report argues that biofuels can’t be to blame, because Chinese consumption growth was so big it had to have taken up more of the effect. The report has subsequently gotten quite a bit of attention.

The report makes a few leaps of faith in calculating grain needs for animals, and concludes it would have taken an extra 200 million metric tonnes of grains to raise the animals needed for the growth alone. This though makes no sense as in 2007 total worldwide grain production was around 2 billion tonnes. If the Chinese had really increased their need for grains that much, the effect on food prices would have been significantly greater than they were.

The simple answer is that the Chinese do not feed their animals on grain alone, but use grazing methods as well. Also, not all meat requires the same high input levels that beef does, and since most of Chinese meat growth is in chicken and pigs, the real effect would have been much smaller. Yes, it takes more to make meat, but producers have also been making more in response to the expected increase in demand.

The unforeseen shocks have thus been exacerbated by bad food stock policies and, yes, increased consumption by developing countries. Of course, the hypocrisy of blaming the poor who now are eating more is that the high consumption of developed countries is just as much, if not more, to blame.

The average American consumes almost 100 pounds of beef alone in a year--one of the highest in the world. Most people outside the US and Europe eat very little meat; the world average is only 22 pounds a year, while the average person from China would expect to eat only 9 pounds in a year. The entire country of China, with over 4 times the population of the U.S., consumes one-half as much beef in a year as we do.

If we’re going to point fingers at consumers for their taste in meat, we should not point them at the Chinese, who are just trying to enjoy a greatly increased life-style, but at ourselves, with our much bigger diets.

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A short bio

I am a consultant with the World Bank in DC and a recent PhD graduate of economics at the University of California, Irvine. My research is on conflict and post-conflict development, and the economic impact of the environment and environmental change. I am currently working on a randomized impact evaluation for the World Bank in the post-conflict area of northern Uganda.

My two favorite quotes

>> If you want to build a ship, don't drum up people to collect wood and don't assign them tasks and work, but rather teach them to long for the endless immensity of the sea. - Antoine de Saint-Exupery

>> One of Einstein's colleagues asked him for his telephone number one day. Einstein reached for a telephone directory and looked it up. "You don't remember your own number?" the man asked, startled.

"No," Einstein answered. "Why should I memorize something I can so easily get from a book?"